paulson - on the brink; inside the race to stop the collapse of the global financial system (2010)

RICHARD SHELBY R-Alabama, ranking Republican onthe Senate Committee on Banking, Housing, andUrban Affairs FINANCIAL LEADERS AND THEIR LLOYD BLANKFEIN, chairman and CEO of Goldman Sachs W

Copyright © 2010 by Henry M Paulson, Jr

All rights reserved Except as permitted under the U.S.Copyright Act of 1976, no part of this publication may bereproduced, distributed, or transmitted in any form or byany means, or stored in a database or retrieval system,without the prior written permission of the publisher

First eBook Edition: February 2010

ISBN: 978-0-446-56567-7

Acronyms Used in the TextAcknowledgmentsAbout the Author

M AIN C AST OF C HARACTERS

(in Alphabetical Order)

REP ROY BLUNT (R-Missouri), House minority whip

REP JOHN BOEHNER (R-Ohio), House minority leader

SEN JIM BUNNING (R-Kentucky), member of the SenateCommittee on Banking, Housing, and Urban Affairs

SEN HILLARY RODHAM CLINTON (D–New York)

SEN CHRISTOPHER DODD (D-Connecticut), chairman of theSenate Committee on Banking, Housing, and UrbanAffairs

REP RAHM EMANUEL (D-Illinois), chairman of the HouseDemocratic Caucus; later chosen as chief of staff byPresident-elect Barack Obama

REP BARNEY FRANK (D-Massachusetts), chairman of theHouse Committee on Financial Services

SEN LINDSEY GRAHAM (R–South Carolina), national campaignco-chairman for Sen John McCain

SEN JUDD GREGG (R–New Hampshire), ranking Republican

REP NANCY PELOSI (D-California), Speaker of the House

SEN HARRY REID (D-Nevada), Senate majority leader

SEN CHARLES SCHUMER (D–New York), vice chairman of theSenate Democratic Conference

SEN RICHARD SHELBY (R-Alabama), ranking Republican onthe Senate Committee on Banking, Housing, andUrban Affairs

FINANCIAL LEADERS AND THEIR

LLOYD BLANKFEIN, chairman and CEO of Goldman Sachs

WARREN BUFFETT, chairman and CEO of Berkshire Hathaway

H RODGIN COHEN, chairman of Sullivan & Cromwell

MERVYN DAVIES, chairman of Standard Chartered Bank

JAMES DIMON, chairman and CEO of JPMorgan Chase

J CHRISTOPHER FLOWERS, CEO of J.C Flowers & Company

RICHARD FULD, chairman and CEO of Lehman Brothers

EDWARD HERLIHY, co-chairman of the executive committee ofWachtell, Lipton, Rosen & Katz

JEFFREY IMMELT, chairman and CEO of General Electric

ROBERT KELLY, chairman and CEO of Bank of New YorkMellon

RICHARD KOVACEVICH, chairman of Wells Fargo

KENNETH LEWIS, chairman and CEO of Bank of America

EDWARD LIDDY, chairman and CEO of AIG

HERBERT (BART) MCDADE III, president of Lehman Brothers

DANIEL MUDD, president and CEO of Fannie Mae

VIKRAM PANDIT, CEO of Citigroup

ROBERT RUBIN, former secretary of the Treasury; director andsenior counselor of Citigroup

ALAN SCHWARTZ, CEO of Bear Stearns

ROBERT SCULLY, vice chairman of Morgan Stanley

LAWRENCE SUMMERS, former secretary of the Treasury; chosen

as director of the National Economic Council byPresident-elect Barack Obama

RICHARD SYRON, chairman and CEO of Freddie Mac

JOHN THAIN, chairman and CEO of Merrill Lynch

ROBERT WILLUMSTAD, CEO of AIG

FINANCIAL REGULATORS

SHEILA BAIR, chairman of the Federal Deposit InsuranceCorporation

BEN BERNANKE, chairman of the Federal Reserve Board

CHRISTOPHER COX, chairman of the Securities and ExchangeCommission

JOHN DUGAN, comptroller of the currency

TIMOTHY GEITHNER, president of the Federal Reserve Bank ofNew York; later nominated for secretary of theTreasury by President-elect Barack Obama

DONALD KOHN, vice chairman of the Federal Reserve Board

JAMES LOCKHART, director of the Federal Housing FinanceAgency

CALLUM MCCARTHY, chairman of the Financial ServicesAuthority (United Kingdom)

INTERNATIONAL LEADERS

ALISTAIR DARLING, chancellor of the Exchequer of the UnitedKingdom

HU JINTAO, president of the People’s Republic of China

MERVYN KING, governor of the Bank of England

ALEXEI KUDRIN, finance minister of Russia

CHRISTINE LAGARDE, finance minister of France

ANGELA MERKEL, chancellor of Germany

VLADIMIR PUTIN, prime minister of Russia

NICOLAS SARKOZY, president of France

JEAN-CLAUDE TRICHET, president of the European CentralBank

WANG QISHAN, vice premier of the State Council of thePeople’s Republic of China

WU YI, vice premier of the State Council of the People’sRepublic of China

ZHOU XIAOCHUAN, governor of the central bank of the People’sRepublic of China

PRESIDENTIAL CANDIDATES AND THEIR RUNNING MATES

SEN JOSEPH BIDEN, JR (D-Delaware), vice presidentialcandidate for the Democratic Party; later elected 47thvice president of the United States

SEN JOHN MCCAIN (R-Arizona), presidential candidate for theRepublican Party

SEN BARACK OBAMA (D-Illinois), presidential candidate for the

GOV SARAH PALIN (R-Alaska), vice presidential candidate forthe Republican Party

TREASURY DEPARTMENT

MICHELE DAVIS, assistant secretary for public affairs anddirector of policy planning

KEVIN FROMER, assistant secretary for legislative affairs

ROBERT HOYT, general counsel

DAN JESTER, contractor

NEEL KASHKARI, assistant secretary for internationaleconomics and development and interim assistantsecretary for financial stability

JAMES LAMBRIGHT, chief investment officer of TARP

CLAY LOWERY, acting undersecretary for international affairs

JEB MASON, deputy assistant secretary for business affairs

DAVID MCCORMICK, undersecretary for international affairs

DAVID NASON, assistant secretary for financial institutions

JEREMIAH NORTON, deputy assistant secretary for financialinstitutions policy

KARTHIK RAMANATHAN, director of the Office of DebtManagement

ANTHONY RYAN, assistant secretary for financial markets

STEVEN SHAFRAN, senior adviser to the secretary of theTreasury

ROBERT STEEL, undersecretary for domestic finance; laterpresident and CEO of Wachovia

PHILLIP SWAGEL, assistant secretary for economic policy

JAMES WILKINSON, chief of staff

KENDRICK WILSON, contractor

WHITE HOUSE

JOSHUA BOLTEN, chief of staff

GEORGE W BUSH, 43rd president of the United States

RICHARD CHENEY, 46th vice president of the United States

EDWARD GILLESPIE, counselor to the president

STEPHEN HADLEY, national security adviser

KEITH HENNESSEY, assistant to the president for economicpolicy; later director of the National Economic Council

JOEL KAPLAN, deputy chief of staff for policy

EDWARD LAZEAR, chairman of the Council of EconomicAdvisers

DANIEL MEYER, assistant to the president for legislativeaffairs

A UTHOR’S N OTE

The pace of events during the financial crisis of 2008 wastruly breathtaking In this book, I have done my best todescribe my actions and the thinking behind them duringthat time, and to convey the breakneck speed at whichevents were happening all around us

I believe the most important part of this story is the wayBen Bernanke, Tim Geithner, and I worked as a teamthrough the worst financial crisis since the GreatDepression There can’t be many other examples ofeconomic leaders managing a crisis who had as much trust

in one another as we did Our partnership proved to be anenormous asset during an incredibly difficult period But atthe same time, this is my story, and as hard as I have tried

to reflect the contributions made by everyone involved, it isprimarily about my work and that of my talented anddedicated team at Treasury

I have been blessed with a good memory, so I havealmost never needed to take notes I don’t use e-mail Irarely take papers to meetings I frustrated my Treasurystaff by seldom using briefing memos Much of my workwas done on the phone, but there is no official record ofmany of the calls My phone log has inaccuracies andomissions To write this book, I called on the memories ofmany of the people who were with me during these events.Still, given the high degree of stress during this time andthe extraordinary number of problems I was juggling in asingle day, and often in a single hour, I am sure there are

give the unbridled truth I call it the way I see it.

In Washington, congressional and executive branchleaders are underappreciated for their work ethic and forthe talents they apply to difficult jobs As a result, this bookhas many heroes

I’ve also tried to tell this story so that it could be readilyunderstood by readers of widely varying degrees offinancial expertise That said, I am sure it is overlysimplified in some places and too complex in others.Throughout the narrative, I cite changes in stock prices andcredit default swap rates, not because those numbersmatter in and of themselves, but because they are the mosteffective way to represent the plummeting confidence andrising sense of crisis in our financial markets and oureconomy during this period

I now have heightened respect for anyone who hasever written a book Even with a great deal of help fromothers, I have found the process to be most challenging

There is no question that these were extraordinary andtumultuous times Here is my story

It was Thursday morning, September 4, 2008, and wewere in the Oval Office of the White House discussing thefate of Fannie Mae and Freddie Mac, the troubled housingfinance giants For the good of the country, I had proposedthat we seize control of the companies, fire their bosses,and prepare to provide up to $100 billion of capital supportfor each If we did not act immediately, Fannie and Freddiewould, I feared, take down the financial system, and theglobal economy, with them.

I’m a straightforward person I like to be direct withpeople But I knew that we had to ambush Fannie andFreddie We could give them no room to maneuver Wecouldn’t very well go to Daniel Mudd at Fannie Mae orRichard Syron at Freddie Mac and say: “Here’s our idea forhow to save you Why don’t we just take you over and throwyou out of your jobs, and do it in a way that protects thetaxpayer to the disadvantage of your shareholders?” Thenews would leak, and they’d fight They’d go to their manypowerful friends on Capitol Hill or to the courts, and the

I had come alone to the White House from an 8:00a.m meeting at Treasury with Ben Bernanke, the chairman

of the Federal Reserve Board, who shared my concerns,and Jim Lockhart, head of the Federal Housing FinanceAgency (FHFA), the main regulator for Fannie and Freddie.Many of our staffers had been up all night—we had all beenputting in 18-hour days during the summer and through thepreceding Labor Day holiday weekend—to hammer out thelanguage and documents that would allow us to make themove We weren’t quite there yet, but it was time to get thepresident’s official approval We wanted to place Fannieand Freddie into conservatorship over the weekend andmake sure that everything was wrapped up before theAsian markets opened Sunday night

The mood was somber as I laid out our plans to thepresident and his top advisers, who included White Housechief of staff Josh Bolten; deputy chief of staff Joel Kaplan;

Ed Lazear, chairman of the Council of Economic Advisers;Keith Hennessey, director of the National EconomicCouncil (NEC); and Jim Nussle, director of the Office ofManagement and Budget The night before, Alaskagovernor Sarah Palin had electrified the RepublicanNational Convention in St Paul, Minnesota, with herspeech accepting the nomination as the party’s vicepresidential candidate, but there was no mention of that inthe Oval Office St Paul might as well have been onanother planet

The president and his advisers were well informed ofthe seriousness of the situation Less than two weeksbefore, I had gotten on a secure videoconference line in theWest Wing to brief the president at his ranch in Crawford,Texas, and explained my thinking Like him, I am a firmbeliever in free markets, and I certainly hadn’t come toWashington planning to do anything to inject thegovernment into the private sector But Fannie and Freddiewere congressionally chartered companies that alreadyrelied heavily on implicit government support, and inAugust, along with Bernanke, I’d come to the conclusion

protect the taxpayer The president had agreed.

It is hard to exaggerate how central Fannie andFreddie were to U.S markets Between them they owned

or guaranteed more than $5 trillion in residential mortgagesand mortgage-backed securities—about half of all those inthe country To finance operations, they were among thebiggest issuers of debt in the world: a total of about $1.7trillion for the pair They were in the markets constantly,borrowing more than $20 billion a week at times

But investors were losing faith in them—for goodreason Combined, they already had $5.5 billion in netlosses for the year to date Their common share prices hadplunged—to $7.32 for Fannie the day before from $66 oneyear earlier The previous month, Standard & Poor’s, therating agency, had twice downgraded the preferred stock

of both companies Investors were shying away from theirauctions, raising the cost of their borrowings and makingexisting debt holders increasingly nervous By the end ofAugust, neither could raise equity capital from privateinvestors or in the public markets

Moreover, the financial system was increasingly shaky.Commercial and investment bank stocks were underpressure, and we were nervously monitoring the health ofseveral ailing institutions, including Wachovia Corporation,Washington Mutual, and Lehman Brothers We had seenwhat happened in March when Bear Stearns’scounterparties—the other banks and investment housesthat lent it money or bought its securities—abruptly turnedaway We had survived that, but the collapse of Fannie andFreddie would be catastrophic Seemingly everyone in theworld—little banks, big banks, foreign central banks, moneymarket funds—owned their paper or was a counterparty.Investors would lose tens of billions; foreigners would loseconfidence in the U.S It might cause a run on the dollar

The president, in suit coat and tie as always, was allbusiness, engaged and focused on our tactics He leanedforward in his blue-and-yellow-striped armchair I sat in thearmchair to his right; the others were crowded on facing

management of Fannie and Freddie to meet withBernanke, Lockhart, and me the following afternoon We’dlay out our decision and then present it to their boards onSaturday: we would put $100 billion of capital behind each,with hundreds of billions of dollars more available beyondthat, and assure both companies of ample credit lines fromthe government Obviously we preferred that they voluntarilyacquiesce But if they did not, we would seize them.

I explained that we had teams of lawyers, bankexaminers, computer specialists, and others on standby,ready to roll into the companies’ offices and secure theirpremises, trading floors, books and records, and so forth

We had already picked replacement chief executives.David Moffett, a former chief financial officer from U.S.Bancorp, one of the few nearly pristine big banks in thecountry, was on board for Freddie Mac For Fannie Maewe’d selected former TIAA-CREF chief executive andchairman Herb Allison (He was vacationing in theCaribbean, and when I reached him later and twisted hisarm to come to Washington the next day, he’d initiallyprotested: “Hank, I’m in my flip-flops I don’t even have asuit down here.” But he’d agreed to come.)

White House staff had been shocked when we firstsuggested conservatorship for Fannie and Freddie, whichhad the reputation of being the toughest street fighters inWashington But they liked the boldness of the idea, as didthe president He had a deep disdain for entities likeFannie and Freddie, which he saw as part of a permanentWashington elite, detached from the heartland, with formergovernment officials and lobbyists cycling through theirranks endlessly while the companies minted money,thanks, in effect, to a federal entitlement

The president wanted to know what I thought thelonger-term model for Fannie and Freddie ought to be Iwas keen to avoid any existential debate on the twocompanies that might bog down in partisan politics on theHill, where Fannie and Freddie had ardent friends andenemies

models aren’t seriously flawed and pose a systemic risk,but the last thing we want to start right now is a holy war.”

“What do you suggest?”

“I’ll describe this as a time-out and defer structure untillater I’ll just tell everybody that we’re going to do this tostabilize them and the capital markets and to put the U.S.A.behind their credit to make sure there’s mortgage financeavailable in this country.”

“I agree,” the president said “I wouldn’t propose a newmodel now, either But we’ll need to do it at the right time,and we have to make clear that what we are doing now istransitory, because otherwise it looks like nationalization.”

I said that I had come to believe that what made mostsense longer-term was some sort of dramatically scaled-down structure where the extent of government support wasclear and the companies functioned like utilities Thecurrent model, where profits went to shareholders butlosses had to be absorbed by the taxpayer, did not makesense

The president rose to signal the meeting was over “Itwill sure be interesting to see if they run to Congress,” hesaid

I left the White House and walked back to Treasury,where we had to script what we would say to the twomortgage agencies the following day We wanted to besure we had the strongest case possible in the event theychose to fight But even now, at the 11th hour, we still hadconcerns that FHFA had not effectively documented theseverity of Fannie’s and Freddie’s capital shortfall and thecase for immediate conservatorship

The cooperation among the federal agencies hadgenerally been superb, but although Treasury, the Fed, andthe Office of the Comptroller of the Currency (OCC)agreed, FHFA had been balky all along That was a bigproblem because only FHFA had the statutory power to putFannie and Freddie into conservatorship We had toconvince its people that this was the right thing to do, whilemaking sure to let them feel they were still in charge

understood the gravity of the situation, but his people, whohad said recently that Fannie and Freddie were adequatelycapitalized, feared for their reputations The presidenthimself wouldn’t intervene because it was inappropriate forhim to talk with a regulator, though he was sure Lockhartwould come through in the end In any event, I invoked thepresident’s name repeatedly.

“Jim,” I’d say, “you don’t want to trigger a meltdownand ruin your friend’s presidency, do you?”

The day before I’d gone to the White House, I spokewith Lockhart by phone at least four times: at 9:45 a.m.,3:45 p.m., 4:30 p.m., and then again later that night “Jim, ithas to be this weekend We’ve got to know,” I insisted

Part of FHFA’s reluctance had to do with history It hadonly come into existence in July, as part of hard-won reformlegislation FHFA and its predecessor, the Office ofFederal Housing Enterprise Oversight, which Lockhart hadalso led, were weak regulators, underresourced andoutmatched by the companies they were meant to oversee,and constrained by a narrow view of their charters andauthorities FHFA’s people were conditioned by theirhistory to judge Fannie and Freddie by their statutorycapital requirements, not, as we did, by the much greateramounts of capital that were necessary to satisfy themarket They relied on the companies’ own analysesbecause they lacked the resources and ability to makeindependent evaluations as the Fed and OCC could FHFApreferred to take the agencies to task for regulatoryinfractions and seek consent orders to force change Thatapproach wasn’t nearly enough and would have taken time,which we did not have

Complicating matters, FHFA had recently given thetwo companies clean bills of health based on theircompliance with those weak statutory capital requirements.Lockhart was concerned—and Bob Hoyt, Treasury’sgeneral counsel, agreed—that it would be suicide if weattempted to take control of Fannie and Freddie and theywent to court only to have it emerge that the FHFA had

a much more realistic view of the capital problems and hadsent in teams of Fed and OCC examiners to help themunderstand and itemize the problems down to the lastdollar The Fed and the OCC saw a huge capital hole inFannie and Freddie; we needed to get FHFA examiners tosee the hole.

Lockhart had been skillfully working to get hisexaminers to come up with language they could live with.But on Thursday they still had not done enough to documentthe capital problems We sent in more help Sheila Bair,chairman of the Federal Deposit Insurance Corporation,which had ample experience in closing banks, agreed tosend me her best person to help write a case

Finally, Lockhart managed to get his examiners to signoff on what we needed Either Jim had worn thoseexaminers down or they had come to realize thatimmediate conservatorship was the best way for them toresolve this dangerous situation with their reputationsintact

Thursday evening, Jim put in calls to the CEOs ofFannie and Freddie, summoning them to a meeting Fridayafternoon that Ben and I would attend at FHFA’sheadquarters on G Street (Jim didn’t speak directly toMudd until Friday morning.) We arranged for the firstmeeting to start just before 4:00 p.m so that the marketwould be closed by the time it ended We decided to leadwith Fannie Mae, figuring they were more likely to becontentious

The companies obviously knew something was up,and it didn’t take long for me to start getting blowback DanMudd called me on Friday morning and got straight to thepoint

“Hank,” he asked, “what’s going on? We’ve done allyou asked We’ve been cooperative What’s this about?”

“Dan,” I said, “if I could tell you, I wouldn’t be calling themeeting.”

We’d been operating in secrecy and had managed toavoid any leaks for several weeks, which may be a record

with Kevin Fromer, my assistant secretary for legislativeaffairs, and Jim Wilkinson, my chief of staff, and instead ofhopping out at the curb, we went straight into the building’sparking garage to avoid being seen Unfortunately, BenBernanke walked in the front door and was spotted by areporter for the Wall Street Journal, who posted word onthe paper’s website.

We met the rest of our teams on the fourth floor.FHFA’s offices were a contrast to those at the Fed andTreasury, which are grand and spacious, with lots ofmarble, high ceilings, and walls lined with elegant paintings.FHFA’s offices were drab and cramped, the floors clad inthin office carpet

As planned, we arrived a few minutes early, and assoon as I saw Lockhart I pulled him aside to buck him up

He was ready but shaky This was a big step for him.Our first meeting was with Fannie in a conferenceroom adjacent to Jim’s office We’d asked both CEOs tobring their lead directors Fannie chairman Stephen Ashleyand general counsel Beth Wilkinson accompanied Mudd

He also brought the company’s outside counsel, H RodginCohen, chairman of Sullivan & Cromwell and a noted banklawyer, who’d flown down hastily from New York

Between our group from Treasury, the Fed’s team,Lockhart’s people, and Fannie’s executives, there musthave been about a dozen people in the glass-walledconference room, spread around the main table andarrayed along the walls

Lockhart went first He took Fannie Mae through along, detailed presentation, citing one regulatory infractionafter another Most didn’t amount to much, frankly; theywere more like parking tickets in the scheme of things Hewas a little nervous and hesitant, but he brought his speecharound to the key point: his examiners had concluded therewas a capital deficiency, the company was operating in anunsafe and unsound manner, and FHFA had decided to put

it into conservatorship He said that we all hoped theywould agree to do this voluntarily; if not, we would seize

As he spoke I watched the Fannie Mae delegation.They were furious Mudd was alternately scowling orsneering Once he put his head between his hands andshook it In truth, I felt a good bit of sympathy for him Hehad been dealt a tough hand Fannie could be arrogant,even pompous, but Mudd had become CEO after a messyaccounting scandal and had been reasonably cooperative

as he tried to clean things up

I followed Lockhart and laid out my argument as simply

as I could Jim, I said, had described a serious capitaldeficiency I agreed with his analysis, but added thatalthough I’d been authorized by Congress to do so, I haddecided that I was not prepared to put any capital intoFannie in its current form I told them that I felt Fannie Maehad done a better job than Freddie Mac; they had raised

$7.4 billion earlier in the year, while Freddie had delayedand had a bigger capital hole Now, however, neither couldraise any private money The markets simply did notdifferentiate between Fannie and Freddie We would not,either I recommended conservatorship and said that Muddwould have to go Only under those conditions would we beprepared to put in capital

“If you acquiesce,” I concluded, “I will make clear to all I

am not blaming management You didn’t create thebusiness model you have, and it’s flawed You didn’t createthe regulatory model, and it is equally flawed.”

I left unspoken what I would say publicly if they didn’tacquiesce

Ben Bernanke followed and made a very strongspeech He said he was very supportive of the proposedactions Because of the capital deficiency, the safety andsoundness of Fannie Mae was at risk, and that in turnimperiled the stability of the financial system It was in thebest interests of the country to do this, he concluded

Though stunned and angry, the Fannie team was quick

to raise issues Mudd clearly thought Fannie was beingtreated with great injustice He and his team were eager toput space between their company and Freddie, and the

investors in both companies were looking to theircongressional charters and implicit guarantees from theUnited States of America The market perceived them asindistinguishable And that was it The Fannie executivesasked how much equity capital we planned to put in Howwould we structure it? We wouldn’t say We weren’t eager

to give many details at all, because we didn’t want to readabout it in the press

“Dan’s too gracious a man to raise this,” said BethWilkinson “But we’re a unified management team Howcome he is the only one being fired, and why are youreplacing him?”

“I don’t think you can do something this drastic and notchange the CEO,” I replied “Beyond that, frankly, I want to

do as little as possible to change management.”

“Our board will want to take a close look at this,” Muddsaid, attempting to push back

Richard Alexander, the managing partner for Arnold &Porter, FHFA’s outside counsel, replied: “I need you tounderstand that when these gentlemen”—he meantLockhart, Bernanke, and me—“come to your boardmeeting tomorrow, it’s not to have a dialogue.”

“Okay,” Rodge Cohen said, and it was clear heunderstood the game was over

After the meeting, I made a few quick calls to keylegislators I had learned much, none of it good, since going

to Congress in July for unprecedented emergencyauthorities to stabilize Fannie and Freddie I had said thenthat if legislators gave me a big enough weapon—a

“bazooka” was what I specifically requested—it was likely Iwouldn’t have to use it But I had not known of the extent ofthe companies’ problems then After I had learned of thecapital hole, I had been unable to speak about it publicly, soconservatorship would come as a shock, as would the level

of taxpayer support I was also very concerned thatCongress might be angered that I had turned temporaryauthority to invest in Fannie and Freddie, which wouldexpire at year-end 2009, into what effectively was a

Committee on Financial Services, and Chris Dodd, hiscounterpart on the Senate Banking Committee Barneywas scary-smart, ready with a quip, and usually a pleasure

to work with He was energetic, a skilled and pragmaticlegislator whose main interest was in doing what hebelieved was best for the country He bargained hard butstuck to his word Dodd was more of a challenge We’dworked together on Fannie and Freddie reform, but he hadbeen distracted by his unsuccessful campaign for theDemocratic presidential nomination and seemedexhausted afterward Though personable andknowledgeable, he was not as consistent or predictable asBarney, and his job was more difficult because it was muchharder to get things done in the Senate He and his staffhad a close relationship with Fannie, so I knew that if theydecided to fight, they would go to him

As it turned out, the calls went well I explained thatwhat we were doing was driven by necessity, not ideology;

we had to preempt a market panic I knew their initiallysupportive reactions might change—after they understoodall the facts and had gauged the public reaction But wewere off to a good start

Then I went into the meeting with Freddie Dick Syronhad brought his outside counsel, along with a few of hisdirectors, including Geoff Boisi, an old colleague from myGoldman Sachs days

We ran through the same script with Freddie, and thedifference was clear: Where Mudd had been seething,Syron was relaxed, seemingly relieved He had appearedfrustrated and exhausted as he managed the company, and

he looked like he’d been hoping for this to happen He wasready to do his duty—like the man handed a revolver andtold, “Go ahead and do it for the regiment.”

He and his people mostly had procedural issues toraise Would it be all right for directors to phone in or wouldthey have to come in person? How would the news becommunicated to their employees?

As we had with Fannie Mae, we swore everyone in the

more calls to the Hill and to the White House, where I gaveJosh Bolten a heads-up I spoke with, among others, NewYork senator Chuck Schumer; Alabama senator RichardShelby, the ranking Republican on the Senate BankingCommittee; and Alabama representative Spencer Bachus,the ranking Republican on the House Committee onFinancial Services.

I went home exhausted, had a quick dinner with mywife, Wendy, and went to bed at 9:30 p.m (I’m an “early tobed, early to rise” fellow I simply need my eight hours ofsleep I wish it weren’t the case, but it is.)

At 10:30 p.m the home phone rang, and I picked it up

My first thought, which I dreaded, was that maybe someonewas calling to tell me Fannie was going to fight Instead Iheard the voice of Senator Barack Obama, the Democraticnominee for president

“Hank,” he began, “you’ve got to be the only guy in thecountry who’s working as hard as I am.”

He was calling from someplace on the road He hadlearned about the moves we’d made and wanted to talkabout what it meant I didn’t know him very well at all At mylast official function as Goldman Sachs CEO before moving

to Washington, I’d invited him to speak to our partners at ameeting we’d held in Chicago The other main speaker atthat event had been Berkshire Hathaway CEO WarrenBuffett

I would, in fact, get to know Obama better over thecourse of the fall, speaking to him frequently, sometimesseveral times a day, about the crisis I was impressed withhim He was always well informed, well briefed, and self-confident He could talk about the issues I was dealing with

in an intelligent way

That night he wanted to hear everything we’d done andhow and why I took the senator through our thinking and ourtactics He was quick to grasp why we thought the twoagencies were so critical to stabilizing the markets andkeeping low-cost mortgage financing available Heappreciated our desire to protect the taxpayers as well

Common and preferred shareholders alike were beingwiped out, and we had replaced the CEOs.

“That sounds like strong medicine,” Obama said Hewas glad we were replacing the CEOs and asked aboutwhether there had been any golden parachutes

I told him we would take care of that, and he shifted theconversation to discuss the broader issues for the capitalmarkets and the economy He wanted to hear my views onhow we’d gotten to this point, and how serious theproblems were

“It’s serious,” I said, “and it’s going to get worse.”

In all, we were on the phone that night for perhaps 30minutes Arizona senator John McCain’s selection of SarahPalin as his running mate had energized the Republicanbase, and McCain was surging in the polls, but at leastovertly there didn’t seem to be “politics” or maneuvering inObama’s approach to me Throughout the crisis, he played

it straight He genuinely seemed to want to do the rightthing He wanted to avoid doing anything publicly—orprivately—that would damage our efforts to stabilize themarkets and the economy

But of course, there’s always politics at play: the dayafter the election Obama abruptly stopped talking to me

When I woke the next morning, word of our plan to takecontrol of Fannie and Freddie was bannered in all themajor newspapers Then, when I got to the office, I told mystaff about my conversation with Obama, and they got a bitpanicky Since some Republicans considered me to be acloset Democrat, my staff had misgivings about any action

on my part that might be construed as favoring Obama So

we figured I had better put in a call to McCain to even thingsup

I connected with the Republican candidate late in themorning I had a cordial relationship with John, but we werenot particularly close and had never discussed economicissues—our most in-depth conversations had concernedclimate change But that day McCain was ebullient andfriendly The Palin selection had clearly revitalized him, and

McCain had little more to say as I described theactions we had taken and why, but Governor Palinimmediately made her presence felt Right away shestarted calling me Hank Now, everyone calls me Hank Myassistant calls me Hank Everyone on my staff, from top tobottom, calls me Hank It’s what I like But for some reason,the way she said it over the phone like that, even thoughwe’d never met, rubbed me the wrong way.

I’m also not sure she grasped the full dimensions of thesituation I had sketched out—or so some of her commentsmade me think But she grasped the politics pretty quickly

“Hank,” she asked, “did any of their executives getgolden parachutes? Did you fire all the people you needto? Hank, can we claw back any of their compensation?”

From that call I went into a noon meeting that lastedperhaps an hour with the board of directors of FreddieMac In the afternoon, around 3:00 p.m., it was FannieMae’s turn To avoid publicity, we switched from FHFAheadquarters to a ground-floor conference room at theFederal Housing Finance Board offices, a few blocks fromLafayette Square

Lockhart, Bernanke, and I followed the same scriptfrom the previous afternoon: Jim led off explaining that wehad decided on conservatorship, citing capital inadequacyand his list of infractions I laid out our terms, and Benfollowed with his description of the catastrophe that wouldoccur if we did not take these actions

Going into the weekend, there had been sometrepidation among our team that the two government-sponsored enterprises (GSEs), especially Fannie, wouldresist But after all my years as a Goldman Sachs banker Iknew boards, and I felt sure that they would heed our call.They had fiduciary duties to their shareholders, so theywould want us to make the strongest case we could Weemphasized that if the government didn’t put them intoconservatorship, the companies would face insolvency andtheir shareholders would be worse off I also knew thathaving these arguments made directly to them by their

immense weight.

Just like the initial meetings the day before, thesession with the Freddie board went much easier than theone with its sister institution Fannie’s directors, like itsmanagement, wanted to differentiate their company fromFreddie, but we made clear we could do no such thing

I made a round of phone calls Saturday and Sunday tocongressional leaders, as well as to senior financialindustry executives, outlining our actions and theimportance of stabilizing Fannie and Freddie Just abouteveryone was supportive, even congratulatory, although I doremember Chris Dodd being a little put out when I talked tohim a second time, on Sunday

“Whatever happened to your bazooka, Hank?” heasked

I explained that I had never thought I’d have to use theemergency powers Congress had given me in July, butgiven the state of affairs at the GSEs, I’d had no choice.Still, I knew I would have to spend some time with Chris tomake him feel more comfortable

After the Fannie board meeting, I received a call I’dbeen expecting most of the day Word had gotten out thatI’d talked to Palin, so I’d been thinking, Joe Biden’s bound

to call, too. And, sure enough, he did The predictability of itgave me my one good laugh of the day, but the Democraticvice presidential candidate was on top of the issue; heunderstood the nature of the problem we faced andsupported our strong actions

Sunday morning at 11:00, Jim Lockhart and I officiallyunveiled the Fannie Mae and Freddie Mac rescue with astatement to the press I described four key steps we weretaking: FHFA would place the companies intoconservatorship; the government would provide up to $100billion to each company to backstop any capital shortfalls;Treasury would establish a new secured lending creditfacility for Fannie and Freddie and would begin atemporary program to buy mortgage-backed securitiesthey guaranteed, to boost the housing market

Americans and their families The GSEs were so big and

so interwoven into the fabric of the financial system that afailure of either would mean grave distress throughout theworld

“This turmoil,” I said, “would directly and negativelyimpact household wealth: from family budgets, to homevalues, to savings for college and retirement A failurewould affect the ability of Americans to get home loans,auto loans, and other consumer credit and businessfinance And a failure would be harmful to economic growthand job creation.”

It would also have major international financialramifications Among the many financial leaders I spoke tothat day were my old friends Zhou Xiaochuan, the head ofthe central bank of China, and Wang Qishan, vice premier

in charge of China’s financial and economic affairs It wasimportant to relay what was going on to the Chinese, whoowned a vast quantity of U.S securities, including hundreds

of billions of dollars of GSE debt They had trusted ourassurances and held on to this paper at a crucial time in ashaky market Fortunately, I knew both men well, and wehad been able to speak frankly to one another throughoutthe crisis

“I always said we’d live up to our obligations,” Ireminded Wang “We take them seriously.”

“You’re doing everything you know how to,” Wang said,adding that the Chinese would continue to hold theirpositions He congratulated me on our moves but struck acautious note: “I know you think this may end all of yourproblems, but it may not be over yet.”

Still, that Sunday afternoon in my office, placing callsall around the world, I couldn’t help but feel a bit relieved

We had just pulled off perhaps the biggest financial rescue

in history Fannie and Freddie had not been able to stop

us, Congress was supportive, and the market looked sure

to accept our moves

I was alone, looking out the tall windows of my office,which faced south toward the National Mall I was not nạve

as I looked out on the Washington Monument I had come

to Washington to make a difference, and we had, I thought,just saved the country—and the world—from financialcatastrophe

The next day, Lehman Brothers began to collapse

C HAPTER 2

Sunday, May 28, 2006

I come from a line of strong women—smart, independent,plainspoken women When my mother learned thatPresident Bush was going to nominate me to be Treasurysecretary and that I had agreed to take the job, she didn’tmince words

“You started with Nixon and you’re going to end withBush?” she moaned “Why would you do such a thing?”

It was the Sunday of Memorial Day weekend in 2006

My mother and I were in the kitchen of my boyhood home inBarrington, Illinois My wife, Wendy, and I owned a homejust down a shared driveway and we had flown in for theweekend to think things through—and to tell my mother

The president was set to announce his intent tonominate me on Tuesday I was scheduled to return to NewYork later that day to talk to the Goldman Sachs board and

to meet with Lloyd Blankfein, my successor as CEO, onMemorial Day That morning I had made the mistake oftelling a good friend in church my news, but I forgot to tellher that I hadn’t yet told my mother By the time I walked up

to Mom’s house, she was in tears

“You’re going to do what you’re going to do,” she said

“But I hope you don’t get confirmed.”

It was just after noon, and Mom was sitting in awooden chair at the table in the breakfast room, staring

Her harsh criticism was also a first—usually she was aloyal, adoring mother who supported my decisionsunstintingly.

My mother’s feelings marked a dramatic shift from myyouth Staunch Republicans, she and my father had beendelighted when, in my first job after business school, I went

to work at the Pentagon and later in Richard Nixon’s WhiteHouse But after Watergate, and as she got older—andespecially after my dad passed away in 1995—my motherhad become a lot more liberal, particularly in her viewsabout women’s and environmental issues Republicansirritated her on the subject of abortion She began tosupport various Democratic candidates, hated the war inIraq, and was very anti–George W Bush

She wasn’t alone in my family Wendy, a collegeclassmate and supporter of Hillary Clinton’s, vehementlyopposed my taking the job, as did our son, Merritt Only ourdaughter, Amanda, the most liberal member of the family,understood and supported my decision

“Mom, I’ve been asked to serve my country,” I said,doing my best to calm her down “And that’s what I amgoing to do.”

“Well,” she replied, unconsoled, “you’ll be jumping onto

My mother did not take calls for 24 hours Then, onWednesday, when the press was filled with largelyfavorable coverage, Mom finally started answering thephone It helped that the callers weren’t saying, “How couldyour idiot son do this?” They were calling to congratulateher

Wellesley College in 1914 and supported her familythrough the Depression with a catering business She diedwhen I was just six months old.

My mom, Marianna Gallauer, followed her to Wellesley,graduating in 1944 An athletic woman, she has remainedactive throughout her life—in community matters and insports She continued to downhill-ski at age 86 and, duringbaseball season, she drives herself into Chicago to watchthe Cubs play at Wrigley Field

She and my father, Henry Merritt Paulson, weremarried in 1944 I am the oldest of three children, followed

by my brother and best friend, Dick, who is two yearsyounger and worked as a bond salesman at LehmanBrothers before moving to Barclays My sister, Kay, who isfive years younger, is a residential real estate broker inColorado

My father also came from the Midwest His mother,Rosina Merritt, grew up on a Wisconsin farm, a descendant

of Wesley Merritt, the Civil War general and onetimesuperintendent of West Point After receiving a master’sdegree in psychology from New York’s ColumbiaUniversity, she returned to Wisconsin to teach Mygrandfather Henry Paulson attended school only through theeighth grade, but this son of a Norwegian immigrant farmerwas a driven, self-taught man He founded and ran HenryPaulson & Company, a successful wholesale watch supplyand repair business in Chicago that, at its height,supported a prosperous lifestyle: my grandparents lived inEvanston, outside of Chicago, and had a modest winterhome in Palm Beach, Florida

My dad wanted to be a farmer He loved the outdoors,the land, and the wildlife, birds in particular I inherited fromhim my interest in birds of prey After graduating fromPrincipia College in southern Illinois, Dad persuaded mygrandfather to buy land in Stuart, Florida, and started aranch with Brahma bulls down there just after World War II

My mom hated it I was born in 1946 in Palm Beach while

my parents were living on that ranch

father had to sell the ranch for next to nothing and return toIllinois to help his father manage a dying business We lived

in a small garage apartment in Winnetka for a few yearsbefore moving to a 75-acre farm in Barrington, a small town

of some 3,500 people 40 or so miles from downtownChicago It was about as far as you could get from the cityback then and still commute comfortably

We always had horses, hogs, cows, sheep, andchickens, not to mention my pet raccoon and crow I spent

a lot of time doing chores—milking cows, mucking outstalls, baling hay We churned cream for butter, drank milkfrom our cows We put up food for the winter, butchering thechickens, hogs, and sheep Mom froze vegetables from thegarden

My father had a fierce work ethic; he was industriousand thrifty From the time I was very young, I understood thatyou didn’t lie around in bed in the morning You didn’t stay

in the shower for more than a couple of minutes You gotup; you worked; you were useful

At one point, when I was nine or ten years old and thefamily was barely scraping by, Dad decided he’d cut ourhair himself and mail-ordered a pair of clippers He didsuch a bad job that he left bare patches on our scalps, then

he filled in the bald spots with pencil and said no one wouldnotice It took several haircuts until Dad became proficient.These traumatized my brother, but I was largely indifferent

to my physical appearance and to what I wore—a lack offashion sense that I have not outgrown

Real happiness, my father liked to say, came not fromanything that was given to you, or that was easy to get Itcame from striving to accomplish things and thenaccomplishing them You had to do things right If you leftgrass tufts sticking up when you mowed the lawn, you had

to do it again

But my father wasn’t all work and no play He helpedset up an extensive network of riding trails in the village,convincing farmers in the neighborhood to put up gates ontheir fields to let us go through on our horses My parents

and especially for fishing My parents indulged this passion

by taking us on wilderness canoe trips with difficultportages through Canada’s Quetico Provincial Park, justabove Ely, Minnesota (Not that this meant extravagance:

my father once told me proudly that we spent less on ourannual two-week trip than it would have cost to live athome.) Wendy joined us the summer before we weremarried, and later we brought our kids along on the canoetrips with Mom and Dad

In 1958, just before I started seventh grade, my parentsdecided we were land rich but cash poor, so they sold thefarm and moved us to a smaller place a little farther out oftown On our 15 acres, we had a barn, seven horses, and abig vegetable garden, but no more livestock We had to buyour chickens and beef and milk in the supermarket likeeveryone else, though we still ate the vegetables that wegrew

I went to local town schools and then Barrington High

As a boy, I was very goal oriented It’s what Wendy calls mygold-star mentality I no sooner became a Boy Scout than Imade up my mind to become an Eagle Scout, which I did,

at 14 I switched my focus to school and excelled in football,wrestling, and my studies

The idea of heading east to college came from mymom, who wanted me to go to Amherst Its students worecoats and ties back then Dartmouth College seemeduncouth to her, but I was recruited to play football there

I loved Dartmouth I made good friends on and off thefootball team—and my professors challenged me Imajored in English because I loved literature, and though Ididn’t like economics, I took several courses in it, as well aslots of math and some physics

I did well in football, despite my size: I was a two-inch, 198-pound offensive lineman, often outweighed

six-foot-by 50 or more pounds six-foot-by opposing tackles Our coach,Bob Blackman, was a superb teacher who trained manyother coaches We won the Lambert trophy as the topDivision 1-A team in the East in 1965 not because we had

During two of the summers I was at Dartmouth, Iworked at a Christian Science camp in Buena Vista,Colorado, called Adventure Unlimited We climbed in themountains, took float trips down the Arkansas River, androde horses—I couldn’t have been happier It was alsoterrific preparation for the future The first year I was a campcounselor and the next year a unit leader, responsible forthe oldest boys, up to 17 and 18 years old, as well ascounselors who were older than I It was a chance tomanage and to lead

Christian Science has always been a big influence on

me It is a religion based on a loving God, not a fearsomeone An authentic confidence comes out of this Youunderstand that you have great capacity to accomplishgood that comes from God Humility is at the core of thereligion As the evangelist John writes: “I can of mine ownself do nothing.”

Christian Science is known to the public mostly for oneaspect, physical healing, especially as an alternative tomodern medicine and its drugs There is, in fact, noprohibition against medical treatment But I am comfortablerelying on prayer because it has proven to be consistentlyeffective for physical healing, for dealing with challenges in

my career, and for spiritual growth

In my senior year, several weeks before graduation, Imet Wendy Judge, a junior at Wellesley, on a blind date set

up by a friend I was immature and behaved badly We went

to a Boston Pops concert, and she was not impressedwhen I folded my program into a paper airplane and sailed

it off the balcony at Arthur Fiedler, the conductor Wendyasked to be taken home early, and I thought I’d never hearfrom her again But she called me up later and invited myroommate and me to come down for Tree Day, a Wellesleycelebration of spring So I had reason to think there washope

I graduated from Dartmouth in 1968, in the midst of theVietnam War As a member of the Naval ROTC program, I

was a strange place for the Naval ROTC—surrounded bycornfields with no water in sight.

Wendy and I started dating regularly my first fall atHarvard Business School I did well enough there withoutstudying too hard, and I spent much of my time at Wellesley

I was 22 and she was 21, awfully young, but we’d come toknow each other very well She was engaging and athletic,determined and competitive We shared similar values andinterests Her dad was a Marine colonel, and she was onscholarship A Phi Beta Kappa English major who lovedthe outdoors, she wore secondhand clothes, rowed stroke

on the crew team, and was an excellent squash player Sheearned all her expense money delivering linens andnewspapers, and working as a tutor and a night watchman.She was extraordinarily trustworthy and knew her mind

Wendy and Hillary Rodham Clinton were in the sameclass They were friendly from student activities: Wendyserved as senior class president, while Hillary waspresident of the student government They stayed in touchover the years, and Wendy hosted one of the first fund-raisers in New York City for Hillary’s Senate campaign in2000

My earliest exposure to official Washington came between

my first and second years at Harvard Business School.Like all Naval ROTC cadets, I was meant to go on a seacruise in the summer Wendy was going to spend thesummer after her graduation teaching sailing andswimming in Quantico, Virginia I was very much in love andwanted to be near her, so I cold-called the office of thesecretary of the Navy and ended up talking to a captainnamed Stansfield Turner, who later became CIA directorunder President Jimmy Carter I proposed doing a study onthe issue of the ROTC on Ivy League campuses At thetime antiwar protesters were burning down ROTCheadquarters at schools across America Turner agreed,and my sea cruise turned into a berth at the Pentagon My

second year of business school I moved quickly even then!

I finished Harvard the following spring, and we moved

to Washington, where I started my first job, also at thePentagon I worked for a unit called the Analysis Group, asmall team that undertook special projects for an assistantsecretary of Defense It was quite a team I worked withJohn Spratt, now chairman of the House Committee on theBudget, and Walt Minnick, who would be elected to theHouse from Idaho in 2008 Bill George, who later ran Med-tronic, preceded us; Stephen Hadley, President Bush’snational security adviser, followed

One project—ironic when you consider my tenure atTreasury—involved analyzing the controversial loanguarantee for Lockheed Corporation, the big defensecontractor, which had run into trouble developing the L-

1011 TriStar commercial jet John Spratt and I wereworking directly for deputy Defense secretary DavidPackard, the legendary co-founder of technology pioneerHewlett-Packard Driving to work one day, I was so focused

on my first presentation for him that I ran out of gas on theGeorge Washington Parkway I left my car beside the roadand hitched a ride to the Pentagon, only to discover that I’dleft my suit coat at home Spratt scrambled to borrowsomething that fit me When I finally got my opportunity tobrief Packard about Lockheed, he responded as I wouldtoday—with great impatience He took off his glasses,looked out the window, and twirled them, while I went onand on He didn’t say anything Wendy would say I stillhaven’t learned the lesson I like others to be brief, butbrevity is not one of my virtues

Packard left Defense in December 1971 Not longafter, I landed a spot at the White House on the DomesticCouncil, which was headed by John Ehrlichman I joined inApril 1972 It was an extraordinary time The Vietnam Warwas winding down, but the country remained polarized Theeconomy was under great strain—Nixon had taken the U.S.off the gold standard the previous year

I hit the ground running, working on a variety of matters

named Lew Engman, who was a great mentor When hewent off to run the Federal Trade Commission after the

1972 election, I took his place—a big promotion

In early 1973, I became liaison to the TreasuryDepartment, which was then run by George Shultz Then theeffects of Watergate crashed down on us I had worked wellwith Ehrlichman He was an impressive, dedicated personwho cared deeply about policy issues He gave me goodadvice, too I remember him telling me that it was importantnot only to do the right things, but also to be perceived to bedoing them

Ehrlichman warned me off certain people in the WhiteHouse, particularly Chuck Colson, the president’s specialcounsel

“Nixon is a very complex guy,” Ehrlichman explainedbefore the 1972 election “He’s got a liberal side to him.That’s Len Garment He’s got an intellectual side and that’sHenry Kissinger.” But, he went on, Nixon was alsoparanoid “He’s never had an election that was easy Hethinks the presidency was stolen from him by the Kennedys

in 1960, and that in ’68, if the campaign had lasted acouple more days, he would have lost So he does not want

to go into this election without a derringer strapped to hisankle And that derringer is Chuck Colson.”

I ended up, of course, being disappointed inEhrlichman, who served time in prison for perjury,conspiracy, and obstruction of justice; Colson wasconvicted of obstruction of justice Seeing men who wereone day on top of the world and in jail the next taught me anenduring life lesson: never be awed by title or position.Later, I would frequently caution young professionals never

to do something they believed was wrong just because aboss had ordered it

I didn’t spend a lot of time with Nixon, but I got alongfine with him when I did He liked athletes and enjoyedworking with young people I was not smooth, and Ioccasionally interrupted him out of eagerness to get mypoint in, but he didn’t take offense

into the Oval Office, and Nixon and I had a brief chat I’dhad this idea to improve the quality of education byreplacing property taxes in inner-city and blightedneighborhoods with a value-added tax, essentially anational sales tax, and using the proceeds to fund avoucher system “Let me tell you about this VAT,” Nixonsaid “I liked the idea, but the reason I didn’t go along with it

is because the liberals will say it’s regressive, which it is,but if they ever got their hands on it, they’d love it so muchthey’d never let it go, because it raises so much money sopainlessly it would fund all these Great Society programs.”

The repercussions of Watergate had given me plenty

of time to look for a job I chose Goldman Sachs because Iwanted to work in the Midwest, and investment bankingwould give me the chance to work on a number of differentprojects at once Goldman had a strong Chicago presence,and I was impressed by its people: Jim Gorter, the seniorpartner in Chicago, and Bob Rubin and Steve Friedman,who were young partners in New York My time ingovernment had taught me that whom you work with is asimportant as what you do

Goldman wasn’t on top of the heap then It was not theleading underwriter or merger adviser that it wouldbecome; in fact, it was doing few deals I spent a yeartraining in New York before being placed in the so-calledinvestment banking services unit: we were a group ofgeneralists who learned all areas of finance and managedclient relationships

After that year, Wendy and I moved to Barrington, and

we bought five of my father’s 15 acres from him Then weeach borrowed from our parents to build the house we stillcall home today It’s a rustic house, nestled at the edge of awoodland on a hill looking out over a grassland I cut thepath for the driveway with a chain saw, built the retainingwalls, and split most of the boulders for our stone fireplace.Wendy, who is mechanically inclined, installed the centralvacuum system and built a large play area for the children

Maybe it was because I was already balding and